Another View -- Charles Lane: Detroit's Greek tragedy

CHARLES LANEJuly 12. 2013 11:12PMLIBERAL ECONOMISTS have a ready response to conservatives who fret that U.S. debt might spiral out of control, à la southern Europe: "America is not Greece."

It's true. Greece has much more public debt than does the United States, relative to economic output. Unlike Greece's euro-denominated obligations, U.S. debt is in U.S. dollars. The U.S. economy is far more competitive than Greece's tourism-and-tomatoes operation.

Certain parts of the United States, however, are like Greece. Just read emergency manager Kevyn Orr's 134-page report on Detroit, which has $20 billion in unpayable debt.

Couched in the workmanlike prose of a bankruptcy lawyer - which is what Orr is - the document nevertheless tells a harrowing story of institutional rot and social collapse, brought on by decades of government of, by and for special-interest groups.

Prominent among them are public-employee unions - 47 in all, from organized crossing guards to the Association of Professional Construction Inspectors. Contracts permitted employees to "bump" from job to job based solely on seniority, "without regard to merit, relevant qualifications or experience," the report says.

Generous pension and retiree health benefits gobbled up tax dollars - more than 38 percent of the city's revenue in fiscal 2012 alone - that would otherwise have paid for public services.

Small wonder that, per the report, the effectiveness of Detroit's police force is "extremely low" and the city's rate of violent crime is five times the national average; or that the average fire station is 80 years old; or that the number of city parks has dwindled from 317 to 107 in the past half-decade.

Detroit could not have financed its bloat without Wall Street. Like German and French banks that bought Greek debt long past the point of reason, Detroit's financial enablers cheerfully synthesized such securities as $1.43 billion in pension-funding "certificates of participation" - about whose "validity and/or enforceability" the Orr report expresses circumspect but ominous doubts.

Spare some blame for Detroit's log-rolling and - it must be said - mostly Democratic politicians, including spectacularly corrupt former Mayor Kwame Kilpatrick, who faces more than 20 years in prison on bribery and extortion charges related to rigging city contracts.

Greece's state-owned money pits include a railroad and ports. The political class in Detroit saw fit to own water works and parking garages. Much as Greece ended up contemplating renting out the Acropolis, cheap, to foreign film crews, Detroit is pondering the sale of masterpieces in its art museum.

Obviously, corruption and interest-group selfishness on a Grecian scale do not explain all of Detroit's problems. Orr's report details the city's chronic job losses, brought on by the long, slow contraction of the auto industry.

Orr does not go into Detroit's devastating history of racism and racial conflict, including horrific riots in 1967, though he could have.

All of the above contributed to the depopulation of the city, which went from 1.9 million residents in 1950 to 700,000 now - a minority of whom earns enough to pay taxes.

Yet difficult as Detroit's economic issues were, bad governance made all of them worse. For too long, too many people whose first concern was supposed to be serving citizens concentrated instead on feeding off whatever public resources Detroit had.

Even now, with municipal bankruptcy staring them in the face, some of Detroit's creditors are resisting Orr's plan to restructure the city's debt and devote $1.25 billion in savings over 10 years toward, well, saving the city - block by burned-out block.

At last check, the 54-year-old Orr was planning to take some bankers on a bus tour of devastated neighborhoods, an effort to raise what Stephen Henderson of the Detroit Free Press calls "empathy capital."

One can only hope for his success. Certainly the Michigan law under which Republican Gov. Rick Snyder appointed Orr authorizes him to do what is necessary - from ripping up union contracts to blowing the whistle on alleged pension fund malfeasance. German chancellor Angela Merkel could only wish for such quasi-dictatorial power over her Greek clients.

Of course, Detroit should never have reached the point where it needed an enlightened dictator. Motor City residents, public employees, financiers and politicians should have practiced the shared sacrifice Orr is belatedly attempting to impose.

Yet they are hardly the only ones to fail. In California, the cities of Vallejo, San Bernardino and Stockton have declared municipal bankruptcy, from which only Vallejo has emerged; Harrisburg, Pa., is insolvent. Last month Fitch Ratings warned that it might downgrade $8.7 billion of Chicago's debt due to a growing unfunded-pension liability.Maybe Americans have nothing to learn from Greece. Detroit, though, is closer to home, and its lessons are not so easily ignored.